Sale and leaseback retail deals soar in Europe

Sale-and-leaseback deals across Europe have accounted for 11.1% of total retail investment volumes during the first three quarters of the year – the highest level since 2007. Volumes are 30% above the average across the past 10 Q1-Q3 periods, according to research from Savills. Sale-and-leasebacks amounted to around €1.7bn (£1.5bn) in the year to the end of Q3. Of these, 39% were concentrated in the UK, followed by France (34%), Spain (13%) and Poland (8%). Supermarkets have led the way on these strategies. Examples include the sale-and-leaseback of a £429m portfolio of Sainsbury’s stores in the UK, bought by Realty Income, and the €392m sale-and-leaseback of a group of Casino supermarkets in France, to Fortress Investment Group. Oli Fraser-Looen, co-head of regional investment advisory EMEA at Savills, said: “In the face of the rising tide of e-commerce across Europe, sale-and-leaseback is seen as a financial strategy to take capital out of real estate assets and put it back into the core retail business. “From an investor’s perspective, it is an alternative opportunity to source property and to invest large amounts of capital, which will, in return, provide long-term income streams. “We see this trend continuing to grow over the forthcoming year where investors will be able to get long term investment leases at highly attractive levels compared to other returning asset classes. There is a time when retail will start to look like compelling value if the core fundamentals are right.” The average gross initial yield achieved is far this year is 6.47%, 25bps higher than the previous year. Savills said this reflected the softening trend in retail yields as well as the rising number of value-add type of transactions. Further yield softening is expected in the sector in the UK, France, Norway, Sweden, Spain and Portugal, while prime yields are predicted to remain stable in Germany, Netherlands, Italy and Poland. Romania was singled out as the only country where further inward movement is anticipated in the coming 12 months. Lydia Brissy, director in the European research division at Savills, said: “What will remain interesting as we move into 2020 will be to see how yields continue to change as investors look to increasingly employ a sale-and-leaseback strategy. “It is very much a buyers’ market at the moment and, as e-commerce levels look only to rise, it wouldn’t be a surprise if next year the percentage of sale-and-leasebacks will be even higher.” To send feedback, e-mail pui-guan.man@egi.co.uk or tweet @PuiGuanM or @estatesgazette